Gasoline Rally Fuels Sugar Surge as Ethanol Competition Tightens Global Supply Outlook
July NY world sugar #11 (SBN26) rose 0.27 cents, or 1.81%, to settle at a one-month high, while London white sugar futures were untraded due to the May Day holiday in the UK.
The latest leg higher comes as gasoline futures surged more than 3%, boosting ethanol prices and prompting market participants to reassess how much cane Brazil's mills will allocate to sugar versus biofuel. With energy costs climbing, the incentive for mills to divert more cane toward ethanol production is growing—a shift that could curb sugar output and further tighten an already precarious global balance.
Green Pool Commodity Specialists last week revised its global 2026/27 sugar deficit estimate sharply higher, from 1.66 million metric tons to 4.30 million metric tons, citing exactly this dynamic: mills prioritizing ethanol over sugar. Brazil's Center-South region, the world's key producing area, crushed 11.9% less sugar in the first half of April compared to a year earlier, with the share of cane allocated to sugar dropping to 32.9% from 44.7%, according to Unica data.
Conab, Brazil's crop agency, reinforced the trend in its initial 2026/27 forecast, projecting a 0.5% decline in sugar output while ethanol production is expected to climb 7.2% year-on-year. The USDA separately forecast Brazil's sugar production at 42.5 million metric tons, down 3% from last season.
Beyond Brazil, supply disruption risks tied to the ongoing closure of the Strait of Hormuz are adding a geopolitical layer to the bullish case. Covrig Analytics estimates the strait's closure has curbed roughly 6% of global sugar trade, constraining refined sugar output.
“The market is waking up to a perfect storm: higher energy costs, lower Brazilian yields, and a trade choke point in the Middle East,” said Carlos Mendez, a São Paulo-based sugar analyst. “We haven't seen this kind of convergence in years.”
Not everyone is convinced the rally has legs. “This is a knee-jerk reaction to gasoline—nothing more,” said Priya Sharma, a commodities trader in Mumbai. “India is sitting on a massive surplus, and the government has already signaled it won't restrict exports. The fundamentals for a sustained sugar bull market just aren't there.”
India's Food Secretary confirmed last month that New Delhi has no plans to ban sugar exports this year, easing fears that the government might divert more cane to ethanol amid crude supply disruptions linked to the Iran conflict. In February, India approved an additional 500,000 metric tons of sugar for export in the 2025/26 season, on top of 1.5 million tons approved in November. The USDA projects India's 2026/27 sugar surplus at 2.5 million metric tons—its first in two years.
Still, global surplus estimates are shrinking fast. Covrig Analytics cut its 2026/27 global surplus forecast to 800,000 metric tons from 1.4 million. Czarnikow slashed its estimate even more dramatically, to 1.1 million metric tons from 3.4 million in February. The International Sugar Organization, meanwhile, forecasts a modest 1.22 million metric ton surplus for 2025/26, following a 3.46 million metric ton deficit the prior season.
“The macro picture is shifting,” said Tomás Oliveira, a supply chain manager at a European confectionery firm. “We're watching Brazil's next Unica report like hawks. If the ethanol pull gets any stronger, we could see prices spike well above current levels.”
On the demand side, the USDA projects global human sugar consumption will rise 1.4% year-on-year to a record 177.9 million metric tons in 2025/26, while ending stocks are expected to fall 2.9% to 41.2 million metric tons.
As of the date of publication, Rich Asplund did not hold positions in any of the securities mentioned. This article is for informational purposes only and was originally published on Barchart.com.